Tesla Motors' Year of Anticipation

The upstart automaker had a solid year, but 2012 will be its make or break.

As the year comes to a close, it's helpful to look back at what happened to the stocks you follow. With a highly visible company like Tesla Motors(Nasdaq: TSLA), whose prominent CEO is frequently quoted in the media, it's easy to get caught up in a short-term view of events – but the longer-term perspective is what really matters when judging an investment.

For Tesla, 2011 was a year of incremental gains and hard work -- gains in credibility and revenue, thanks to deals with some heavy hitters, and hard work to lay the groundwork for the launch of its first mass-market car, the Model S, due in mid-2012. And while the company (and the stock) had some big ups and downs during the year, the share price looks set to end the year incrementally ahead of where it started -- just, I'd argue, as the company will.

Tesla Motors' key statisticsA look at a few key numbers shows that while the company has produced nice revenue growth, profits are still a way off.

Year-to-Date Stock Return

4.3%

Market Cap

$2.92B

Revenue, Trailing 12 Months

$201.15M

Quarterly Revenue Growth (Year Over Year)

84.60%

Earnings (EBITDA), Trailing 12 Months

($207.2M) (loss)

Quarterly Earnings Growth (Year Over Year)

N/A

CAPS Rating (out of 5)

*

Sources: Yahoo! Finance, Motley Fool CAPS. YTD return from market open on Jan. 3 through market close on Dec. 16.

The stock has returned 4.3% so far in 201. Although a return of just over 4% might not seem that impressive, it did beat the market -- the Dow Jones Industrial Average(INDEX: ^DJI) is up just 1.6% over that same period. It also trounced the stocks of most automakers, including those that enjoyed relative success in 2011: Ford(NYSE: F), General Motors(NYSE: GM), Toyota(NYSE: TM), and Honda(NYSE: HMC) have all fallen to significantly lower levels since the beginning of the year.

Small steps forward add up to a big leapFrom a business perspective, Tesla has made some incremental gains that add up to a solid step forward in 2011. While the company had technology-sharing deals in place with Panasonic(NYSE: PC), Toyota, and Mercedes maker Daimler (OTC: DDAIF.PK) in 2010, significant expansions of its arrangements with both Toyota and Daimler in 2011 added credibility to its perceived technological advantage. They also added promising new streams of revenue for the company in coming years.

That's important for a couple of reasons. First, making cars is a low-margin business: Even the global giants like Toyota and GM, with their massive economies of scale, manage margins only in the 5%-8% range -- and that's when everything is going right. As the technological playing field levels out (and it will), Tesla could find itself competing with the big automakers on price -- but without their scale.

Second, even if Tesla's upcoming cars are complete successes, the market for electric cars may be sharply limited. Recent trends suggest that hybrids will dominate in coming years, and purely electric vehicles may be marginal products for some time. Tesla's ability to generate revenue by supplying powertrains and technology to other automakers could end up being a key lifeline for the company if its vehicles don't take the market by storm -- for whatever reason.

It's a risky plan, but it's being executed wellMeanwhile, development of Tesla's first mass-market model (and the first car built entirely by the company), the Model S sedan, is said to be on schedule. Tesla's efforts to lay the groundwork for the car's anticipated mid-2012 launch appear to have been quite successful to date. The already-loud buzz in car-geek circles has grown considerably in recent months, and CEO Elon Musk said in late October that the company already had 6,500 orders for the car, a number that exceeds Tesla's planned first-year production.

Those orders require a $5,000 "reservation payment," so there's some substance to that number -- it's a lot more than a mailing list. The payment is refundable, but it's high enough that those numbers have to be taken seriously. If the car's launch is a success -- and I know Tesla's supporters hate it when I say this, but there are very good reasons to be skeptical, or at least cautious -- most of those sales will happen. Musk's prediction of profit in 2013 may not be far-fetched.

But it's what happens after the initial rush of Model S sales that will be critical to Tesla's long-term success (or failure). Will the company's products find a home in the wider mass market? Or will sales drop off once the initial rush of early adopters and gadget geeks get their new rides? It'll be at least another year before we know for sure, but so far, the company appears to be on track.

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